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Does Online Piracy Hurt The Entertainment Industry?

Reports of the entertainment industry's death seem much exaggerated. (Image via Wikipedia)

Julian Sanchez has an excellent piece in Ars Technica which takes a look at the claim that content creators are being discouraged from creative pursuits due to online piracy – a claim that has fueled the recently stalled anti-piracy legislation in congress.

Whether SOPA and PIPA would have actually worked is an open question, but whether they were ever even necessary to begin with is even more important.

Sanchez looks at the music and movies industry and finds that, relative to many other struggling industries, these entertainment industries have done far better on average during the recession:

Since the core function of copyright is to incentivize the production of creative works, it’s also worth looking for signs of declining output associated with filesharing. Empirically, it’s surprisingly hard to find an effect. Rather, a recent survey study by Felix Oberholzer-Gee of the Harvard Business School concluded that “data on the supply of new works are consistent with the argument that file sharing did not discourage authors and publishers” from producing more works, at least in the US market.

So, for instance, Nielsen SoundScan data shows new album releases stood at 35,516 in 2000, peaked at 106,000 in 2008, and (amidst a general recession) fell back to mid-decade levels of about 75,000 for 2010. That’s against a general background of falling sales since 2004—mostly explained by factors unrelated to piracy—which finally seems to have reversed in 2011. The actual picture is probably somewhat better than that, because SoundScan data is markedly incomplete when it comes to the releases by indie artists who have benefited most from the rise of digital distribution.

If we look at movies, the numbers compiled by the industry statistics site Box Office Mojo show an average of 558 releases from American studios over the past decade, which rises to 578 if you focus on just the past five years. The average for the previous decade—before illicit movie downloads were even an option on most people’s radar—is 472 releases per year. (As we learn from a recent Congressional Research Service report, it’s weirdly hard to detect a strong overall correlation between output and employment in the motion picture industry, which actually fell slightly from 1998 to 2008, even as profits and CEO pay soared. One reason is the growing trend in recent decades for “Hollywood” features to actually be produced in Canada or Australia.)

But wouldn’t these numbers be even higher minus piracy? Well, not necessarily, Sanchez argues. He points out that the top pirated movies also tend to be at the top of the box office.

The whole thing is worth the read. Sanchez concludes that much of the furor over piracy is inflated by industry studies:

As a rough analogy, since antipiracy crusaders are fond of equating filesharing with shoplifting: suppose the CEO of Wal-Mart came to Congress demanding a $50 million program to deploy FBI agents to frisk suspicious-looking teens in towns near Wal-Marts. A lawmaker might, without for one instant doubting that shoplifiting is a bad thing, question whether this is really the optimal use of federal law enforcement resources. The CEO indignantly points out that shoplifting kills one million adorable towheaded orphans each year. The proof is right here in this study by the Wal-Mart Institute for Anti-Shoplifting Studies. The study sources this dramatic claim to a newspaper article, which quotes the CEO of Wal-Mart asserting (on the basis of private data you can’t see) that shoplifting kills hundreds of orphans annually. And as a footnote explains, it seemed prudent to round up to a million. I wish this were just a joke, but as readers of my previous post will recognize, that’s literally about the level of evidence we’re dealing with here.

As Sanchez concludes, “On the data available so far, though, reports of the death of the industry seem much exaggerated.”

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Great article. I am glad Forbes doesn’t immediately side with the large corporations on this.

I’ve always suspected that this issue has very little to do with piracy and everything to do with wanting to squelch the rise of independent content creation.

SOPA and PIPA (and now ACTA) seem to target businesses which could have legitimate uses for independent artists. Unless you are a massive company like YouTube or Facebook, you won’t have much of a chance getting your business out of the gate.

It’s really sad that there are so many [supposedly] free market fiscal conservatives can’t see this legislation for what it really is.

The real problem is much has it’s always been. The entertainment industry’s reluctance to adopt a new business model when things change.

TV was going to destroy the film industry. Audio recorders, especially cassette tapes, would ruin the music business, VCRs would be the death of both film and TV.

In the end, all of these things actually helped those industries emerge stronger and more profitable than before. Did they learn anything? Such as to change their methods when technology made it possible? No, imitation, not innovation, has been the cornerstone of all media since it was on stone tablets.

Just because more books, records, or whatever are being created doesn’t mean piracy isn’t having a detrimental effect. Rather it only means that more people are creating these products as the technology to do so becomes less expensive.

The real test would be 1) whether EACH of these products is making as much money on the average as EACH such product did before piracy became wide spread. You don’t have to dig much to see that it is not, despite the potential for much larger sales due to the Internet market place.

2) Whether professionals in various markets where products are being pirated are giving up and no longer working because they can’t make a living at it. I’ve seen indications that this is happening as well.

Piracy is killing the cultural golden goose. And bogus studies like the one done by Julian Sanchez are cheerleaders for the slaughter.

sometimes i swear no one has heard the term ‘free advertising’ thats basically what piracy does, someone gets something free and later on they by a hard copy of it, i’m sure that there are a few businesses that would agree with me, such as Mojang, the developers of the ever popular game Minecraft. Ill come out and say it, i started with the pirated version, then when i had the money i payed for it to support further development, i still donate now and again too.

That’s an interesting perspective when you consider only large media companies. As a part time visual artist who is in business for myself, I can tell you the piracy does hurt.

When someone downloads an image they don’t own and uses it without license, it dilutes the value of the image to paying clients who want/need to license exclusive rights. Rather than spend time creating work or going after new clients, I have to contact ISP’s with takedown notices and consult with lawyers.

Just because it’s on the internet, it’s not “free” and, yes, infringement does hurt people.

I have been adding content to this “Internet” thing ever since before the www standard. Veronica, Archi, Gopher, Telnet BBS, etc. where all the standard protocols. We all knew that content placed on public access servers was supposed to be for non-profit sharing and free to access. Then came the porn industry trying to protect their content by introducing copyright into the web, bunch of morons in my opinion. Now years after everyone is making web pages and uploading all sorts of crap onto the net and then staking their copyright claims so nobody touches it, they can look but no touching allowed. The great flaw of the Internet was not to initially write up the “Internet Constitution” and live by the written rules. The first amendment should have been that everything on the net should be of public domain and free to use at will. The second one should have been that no money should be made of virtual services and only tangible goods could be sold. Even though we have no Internet Constitution I personally believe, and think the great majority of people also do, that what ever is on the net is free to use and no need to pay anyone for such, that’s the way it was built. If you don’t want to share you crap then take it off the net! or go build your own net where everything is copyrighted and lawyers can make a living.

This shows a grave naivety to so many a-thing it makes my head spin. The Internet is a marketplace, and as it functions as a virtualized extension of the common market, it is subject to the same regulations wherein it is accessed. This is why you cannot access certain websites from certain states. If I create a song and somebody else places it on the Internet, according to your argument, despite my not uploading the song into the cloud myself; I have immediately lost all rights to my product simply because it is on the Internet. Moreover, your argument suggests that there should be no regulation of the web, which means that you’re permitting explicitly illegal activity, such as downloading child porn videos, simply because they’re being accessed from the Internet.

Your constitution essentially promotes Communism and Anarchism because you have an incautiously optimistic view on the nature of people, and because it suits your desire for product you don’t want to pay for. Rights, including property rights, are not expendable protections simply because the marketplace has changed. American laws do, and need to still apply where people are performing actions inside American jurisdictions (i.e. where you sit on your computer). If content providers wish to create free product then that is there right, but you don’t have anymore right to a copyright-protected song in the virtual market than you do an unpaid Mercedes in the physical market. Theft is theft regardless.

SOPA and PIPA were horribly written laws that created a dangerous scope of enforcement capabilities and I will never support anything that vests such sweeping powers into the hands of authorities. Contrary to that, your argument creates equally as dangerous a situation that is anti-American at its core by stripping producers of their Constitutionally-protected rights. SOPA and PIPA were not the answer, but regulation is necessary lest we raze our own ideals.

Who can really say what the internet really is, its a rather new commodity on which information is free flow, trying to regulate it is like trying to stop a volcano from erupting, theft? really if they want to sell things online they should buy better security, if its the best then you know security has to improve. the internet is constantly changing i don’t pretend or try to fool others into thinking anything can be stopped with any permanency, like it or not. it will not change without every last internet user agreeing, because that odd man out is usually a hacker or soon to be one.

” We all knew that content placed on public access servers was supposed to be for non-profit sharing and free to access.”

That’s just nonsense. I was online then and I knew enough not to take something of someone else’s without permission.

” I personally believe, and think the great majority of people also do, that what ever is on the net is free to use and no need to pay anyone for such, that’s the way it was built.”

Just because you or any number of like minded individuals believes something, that doesn’t make it so. People used to believe that the earth was the center of the universe and the heavens revolved around it.

You have no more right to take things off the internet as your own than you do to drive away in someone’s car simply because the door’s unlocked.

unlike you i state facts from experience, your opinions on solid goods are fine, but non physical goods and services are a different story. and like i said the internet was not invented it simply happened. a car is a manufactured good, the internet is a service so tell me how does copyright benefit the internet and its users as a whole? all it does is state you have to pay to learn anything about other people and their ideas. if companies want private property they need to learn about private access networks and how to use them properly. then again we are getting off topic, piracy does not hurt the economy as a WHOLE, small parts maybe, and i cant say it matters much, no one should base their entire career on something without a backup that is simple business strategic placement of resources.

I would only add the Internet is both a marketplace and a means of sharing information, both free and non-free. You said so in the details of your post indirectly, but I wanted to make it simple.

There is a stong sense of digital entitlement in the American culture that has occurred because of the ubiquity of computers and the web. I’m not completely sure what the answer is to provide a profitable business model to content providers in the broadband age is; however, I most definitely DO NOT want to give the government censorship powers.

Constitutionally protected right to WHAT? Profit, property? Neither exist in any implicit or explicit location in the constitution. I live in a state where one has a right to property, but that’s never been a federal convention.

Perhaps you should have waited to respond until you knew what you were talking about.

Bah. These media companies have been overcharging us for decades. I see piracy as delayed justice. YOU created this for yourselves. Because you’re greedy.

Music artists are leaving big name companies and doing their own productions now. It’s not so much about name and fame as it once was. It’s about artistic freedom and expression without somebody breathing down your neck. Musicians as a whole are an ornery lot to begin with. They don’t like authority. The money maker here is in concert sales, not CD sales.

As for movies, people still like going to the theater and seeing something on the big screen. Pirated movies don’t affect that money maker. Even people who obtain a pirated copy will often go on to buy their favorites because of stuff that doesn’t come with pirated copies.

Quite frankly, for every good movie made, there’s about 50 crappy ones that come along as riders. That’s not our fault, it’s the studios. Don’t bitch about your bottom line being eaten away by pirates. You’re as much at fault as they are. Make better movies. You’ve allowed computer graphics to substitute for good acting and people are tired of it.

The media companies have employed some very nazi-ish tactics to deal with filesharers in the past and there’s no reason to believe they won’t do it again. You’ve even got the Department of Homeland Security chasing after pirates. At OUR expense.

It was my understanding when we formed that department, it was to protect us against terrorism and not be the muscle for an industry that can’t adjust to changing times.

The beauty of the internet is it has the ability to build around any damage. So shut down any site you want. There will be two more to take it’s place before the sun rises.

And your bleeding will continue. And you’ve really got nobody to blame for piracy but your own legacy of greed.